EXHIBIT 99(c)
EMIRATES CMS POWER COMPANY PJSC
FINANCIAL STATEMENTS
AS OF 31 DECEMBER 2004 AND 2003 AND FOR THE
YEARS ENDED 31 DECEMBER 2004, 2003 AND 2002
REPORT OF INDEPENDENT AUDITORS
TO THE BOARD OF DIRECTORS OF
EMIRATES CMS POWER COMPANY PJSC
We have audited the accompanying balance sheets of Emirates CMS Power Company
Private Joint Stock Company as of 31 December 2004 and 2003 and the related
statements of income, cash flows and stockholders' equity for the years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with the auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. We were not engaged to perform an audit of
the Company's internal control over financial reporting. Our audits included
consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but not
for the purpose of expressing an opinion on the effectiveness of the Company's
internal control over financial reporting. Accordingly, we express no such
opinion. An audit also includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Company as of 31 December
2004 and 2003, and the results of its operations and its cash flows for the
years then ended in conformity with US generally accepted accounting principles.
/s/ ERNST & YOUNG
Abu Dhabi, United Arab Emirates
2 April 2005
Emirates CMS Power Company PJSC
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BALANCE SHEETS
31 December 2004 and 2003
2004 2003
Notes AED '000 AED '000
---------- -----------
ASSETS
CURRENT ASSETS
Cash and cash equivalents 160,977 120,300
Prepayments and other current assets 4 25,975 25,074
Amounts due from related party 5 65,719 38,799
Advance to Al Taweelah Shared Facilities Company LLC 6 1,747 1,747
Inventories 7 162,647 166,734
---------- -----------
Total current assets 417,065 352,654
---------- -----------
NON-CURRENT ASSETS
Advance to Al Taweelah Shared Facilities Company LLC 6 32,311 34,058
Other long term asset 13 37,331 5,173
Investment 9 178 178
Property, plant and equipment, net 8 2,176,640 2,242,212
Intangible asset, net 10 103,757 106,720
---------- -----------
2,350,217 2,388,341
---------- -----------
TOTAL ASSETS 2,767,282 2,740,995
========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Trade accounts payable 7,850 2,847
Amounts due to related parties 11 2,841 3,477
Accruals and other liabilities 12 264,764 346,690
Current portion of long term debt 13 60,289 58,631
Current portion of Islamic Ijara debt 14 23,308 --
Current portion of loans from shareholders 15 148,875 129,000
---------- -----------
Total current liabilities 507,927 540,645
---------- -----------
NON-CURRENT LIABILITIES
Asset retirement obligation 3 16,512 15,403
Loans from shareholders 15 49,425 131,000
Long term debt 13 1,323,318 1,769,539
Islamic Ijara debt 14 511,592 --
---------- -----------
1,900,847 1,915,942
---------- -----------
TOTAL LIABILITIES 2,408,774 2,456,587
---------- -----------
STOCKHOLDERS' EQUITY
Share capital (ordinary shares, AED 10 par value,
authorised, issued and outstanding 41,324,000 shares) 16 413,240 413,240
Accumulated losses 16 (69,938) (147,665)
Accumulated other comprehensive income 19 15,206 18,833
---------- -----------
TOTAL STOCKHOLDERS' EQUITY 358,508 284,408
---------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY 2,767,282 2,740,995
========== ===========
The attached notes 1 to 22 form part of these financial statements.
2
Emirates CMS Power Company PJSC
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INCOME STATEMENTS
Years ended 31 December 2004, 2003 and 2002
Unaudited
2004 2003 2002
Notes AED '000 AED '000 AED '000
------- --------- --------- ---------
<c>
Revenue 366,023 363,564 370,686
--------- --------- ---------
Cost of sales
Contractors' staff costs (17,009) (14,149) (14,297)
Repairs, maintenance and consumables used (62,357) (47,095) (36,262)
Depreciation (63,336) (63,591) (63,402)
Amortisation of intangible asset 10 (2,963) (2,963) (2,940)
--------- --------- ---------
(145,665) (127,798) (116,901)
--------- --------- ---------
GROSS PROFIT 220,358 235,766 253,785
Administrative and other operating expenses 21 (8,696) (8,087) (7,925)
--------- --------- ---------
INCOME FROM OPERATIONS 211,662 227,679 245,860
Financing cost (122,109) (119,730) (124,163)
Accretion expense (1,109) (872) --
Interest income 2,209 784 1,848
Changes in fair value of derivative instruments 19 22,322 55,867 (199,093)
Gain on exchange 5,452 534 704
Other income -- 550 --
--------- --------- ---------
NET INCOME (LOSS) BEFORE CUMULATIVE
EFFECT OF CHANGE IN ACCOUNTING PRINCIPLES 118,427 164,812 (74,844)
Cumulative effect of change in accounting for
asset retirement obligation -- (1,165) --
--------- --------- ---------
NET INCOME (LOSS) 118,427 163,647 (74,844)
========= ========= =========
The attached notes 1 to 22 form part of these financial statements.
3
Emirates CMS Power Company PJSC
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STATEMENTS OF CASH FLOWS
Years ended 31 December 2004, 2003 and 2002
Unaudited
2004 2003 2002
Notes AED '000 AED '000 AED '000
------- --------- ---------- ---------
OPERATING ACTIVITIES
Net income (loss) 118,427 163,647 (74,844)
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation and amortisation of intangible asset 66,299 66,554 66,342
Accretion expense 1,109 872 --
Changes in fair value of derivative instruments (22,322) (55,867) 199,093
Reclassification from accumulated other comprehensive
income to earnings of cash flow hedges (3,627) (3,791) (3,955)
Cumulative effect of change in accounting principles -- 1,165 --
Loss on disposal of property, plant and equipment -- 14 173
Changes in assets and liabilities:
Decrease (increase) in inventories 4,087 (6,487) (63,623)
(Increase) decrease in amounts due from related party (26,920) (813) 21,064
(Increase) decrease in prepayments and other current assets (5,809) (5,644) 17,742
(Decrease) increase in accounts payable and accruals and
due to related parties (50,329) 8,652 (30,980)
--------- ---------- ---------
Net cash provided by operating activities 80,915 168,302 131,012
--------- ---------- ---------
INVESTING ACTIVITIES
Purchase of property, plant and equipment (537) (1,299) (2,090)
Adjustment relating to refund of purchases 2,773 -- 10,846
Recovery of advance to
Al Taweelah Shared Facilities Company LLC 1,747 1,669 1,669
--------- ---------- ---------
Net cash from investing activities 3,983 370 10,425
--------- ---------- ---------
FINANCING ACTIVITIES
Dividends paid (40,700) (73,800) (79,400)
Long term debt refinancing fees paid (32,158) (5,173) --
Repayment of loans from shareholders (61,700) (12,000) --
(Repayment) receipt of long -term debt (444,563) (81,677) (71,467)
Islamic Ijara debt 534,900 -- --
--------- ---------- ---------
Net cash used in financing activities (44,221) (172,650) (150,867)
--------- ---------- ---------
INCREASE(DECREASE) IN CASH
AND CASH EQUIVALENTS 40,677 (3,978) (9,430)
Cash and cash equivalents at the beginning of the year 120,300 124,278 133,708
--------- ---------- ---------
CASH AND CASH EQUIVALENTS
AT THE END OF THE YEAR 160,977 120,300 124,278
========= ========== =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for interest 168,175 117,034 92,694
Cash received during the year for interest 2,209 784 1,848
SUPPLEMENTAL DISCLOSURES OF SIGNIFICANT NON-CASH TRANSACTIONS:
Disposal of property, plant and equipment -- -- 1,961
Transfer of property, plant and equipment to related party -- -- 112,623
The attached notes 1 to 22 form part of these financial statements.
4
Emirates CMS Power Company PJSC
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STATEMENTS OF STOCKHOLDERS' EQUITY
Years ended 31 December 2004, 2003 and 2002
Accumulated
other
compre-
Share Accumulated hensive
capital losses income Total
AED '000 AED '000 AED '000 AED '000
------------ ------------ ------------ ------------
Balance at 31 December 2001 - unaudited 413,240 (83,268) 26,579 356,551
Comprehensive (loss):
Net loss for the year - unaudited -- (74,844) -- (74,844)
Reclassification to earnings of cash flow hedges-
unaudited (note 19) -- -- (3,955) (3,955)
------------
Comprehensive (loss) - unaudited (78,799)
------------
Dividends paid - unaudited -- (79,400) -- (79,400)
------------ ------------ ------------ ------------
Balance at 31 December 2002 - unaudited 413,240 (237,512) 22,624 198,352
Comprehensive income:
Net income for the year -- 163,647 -- 163,647
Reclassification to earnings of cash flow hedges (note 19) -- -- (3,791) (3,791)
------------
Comprehensive income 159,856
------------
Dividends paid -- (73,800) -- (73,800)
------------ ------------ ------------ ------------
Balance at 31 December 2003 413,240 (147,665) 18,833 284,408
Comprehensive income:
Net income for the year -- 118,427 -- 118,427
Reclassification to earnings of cash flow hedges (note 19) -- -- (3,627) (3,627)
------------
Comprehensive income 114,800
------------
Dividends paid (note 16) -- (40,700) -- (40,700)
------------ ------------ ------------ ------------
Balance at 31 December 2004 413,240 (69,938) 15,206 358,508
============ ============ ============ ============
The attached notes 1 to 22 form part of these financial statements.
5
Emirates CMS Power Company PJSC
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NOTES TO THE FINANCIAL STATEMENTS
31 December 2004 and 2003
1 ACTIVITIES
Emirates CMS Power Company PJSC ("the Company") is a private joint stock company
registered and incorporated in the United Arab Emirates and is engaged in the
generation of electricity and the production of desalinated water for supply
into the Abu Dhabi grid. The Company is 60% owned by Emirates Power Company
PJSC, a wholly owned subsidiary of Abu Dhabi Water & Electricity Authority
(ADWEA), and 40% owned by CMS Generation Taweelah Limited.
The Company has a management operation and maintenance agreement with Taweelah
A2 Operating Company, a related party, whereby the latter has undertaken to
manage the day-to-day operations and maintain the Company's plant. The Company
has entered into a power and water purchase agreement with Abu Dhabi Water and
Electricity Company (ADWEC), a related party, (a wholly-owned subsidiary of
ADWEA). Under the agreement, the Company undertakes to make available, and ADWEC
undertakes to purchase, the entire net capacity and output of the plant until
October 2021 in accordance with various agreed terms and conditions. The output
payments cover variable operation and maintenance costs and fuel efficiency
bonuses or penalty for actual output. Natural gas fuel is supplied by ADWEC at
no cost.
The Company's registered head office is P O Box 47688, Abu Dhabi, United Arab
Emirates. At 31 December 2004 and 2003 there were no staff employed by the
Company.
2 BASIS OF PRESENTATION
Although at 31 December 2004 the Company's current liabilities exceeded its
current assets by AED 90,862,000 (2003: AED 187,991,000), the financial
statements have been prepared on a going concern basis in view of the credit
facilities available from the bankers. Further, the negative fair value of
derivatives amounting to AED 230.6 million (2003: AED 257.8 million) included
within current liabilities (note 12) will not significantly affect the Company's
cash flow in the foreseeable future.
3 SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PREPARATION
The financial statements are prepared on the basis of U.S. generally accepted
accounting principles and applicable requirements of United Arab Emirates Law
and are presented in United Arab Emirates Dirhams (AED).
ESTIMATES AND ASSUMPTIONS
The preparation of financial statements in conformity with U.S. generally
accepted accounting principles requires management to make estimates and
assumptions that affect reported amounts and related disclosures. Actual results
could differ from those estimates.
REVENUE RECOGNITION
Revenue represents the sale of water desalination and electricity generation
services comprised of the available capacity and variable output to ADWEC during
the year. Revenues are recognised when services are provided. Unbilled revenues
are based on estimated quantities of potable water and kilowatts of electricity
delivered or made available during the year but not yet billed. These estimates
are generally based on contract data and preliminary throughput and allocation
measurements.
6
Emirates CMS Power Company PJSC
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NOTES TO THE FINANCIAL STATEMENTS
31 December 2004 and 2003
3 SIGNIFICANT ACCOUNTING POLICIES continued
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is stated at historical cost less accumulated
depreciation and any impairment in value. The Company capitalises all
construction-related direct labour and material costs as well as indirect
construction costs. Indirect construction costs include engineering and the cost
of funds during the construction phase. The cost of renewals and betterments
that extend the useful life of the property, plant and equipment are
capitalised. The cost of repairs, spare parts and major maintenance that do not
extend the useful life or increase the expected output of property, plant and
equipment, is expensed as incurred. The cost of spare parts held as essential
for the continuity of operations and which are designated as strategic spares
are depreciated on a straight-line basis over the estimated remaining operating
life of the plant and equipment to which they relate
Depreciation is calculated on a straight-line basis over the estimated useful
lives of the assets as follows:
Buildings 30 to 40 years
Plant and equipment (including plant spares) 3 to 40 years
LONG-LIVED ASSETS
Long-lived assets are reviewed for impairment in accordance with Statement of
Financial Accounting Standards No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets (SFAS 144) when events or changes in circumstances
indicate that the related carrying amount may not be recoverable. Impairment is
assessed by comparing an asset's net undiscounted cash flows expected to be
generated over its remaining useful life to the asset's net carrying value. If
impairment is indicated, the carrying amount of the asset is reduced to its
estimated fair value.
INTANGIBLE ASSETS
Intangible assets, which represent acquisition of connection rights, are
capitalised at cost. The carrying values of intangible assets are reviewed for
impairment when events or changes in circumstances indicate that the carrying
value may not be recoverable.
The connection rights cost is amortised on a straight line basis over the 38
year period, being the expected period of benefit, commencing 1 January 2002.
INVENTORIES
Inventories are valued at the lower of cost, determined on the basis of weighted
average costs and net realisable value. Costs are those expenses incurred in
bringing each item to its present location and condition.
ACCOUNTS RECEIVABLE
Accounts receivable are stated net of provisions for amounts estimated to be
non-collectible. An estimate for doubtful accounts is made when collection of
the full amount is no longer probable. Bad debts are written-off as incurred.
ACCOUNTS PAYABLE AND ACCRUALS
Liabilities are recognised for amounts to be paid in the future for goods or
services received, whether billed by the supplier or not.
CASH AND CASH EQUIVALENTS
All highly liquid investments with an original maturity of three months or less
are considered cash equivalents.
LONG TERM DEBT AND ISLAMIC IJARA DEBT
The long term debt and Islamic Ijara debt are carried on the balance sheet at
their principal amounts. Instalments due within one year are shown as a current
liability. Interest on the long term debt and the profit charge (finance cost)
on the Islamic Ijara debt are charged as an expense as they accrue, with unpaid
amounts included in "accruals".
7
Emirates CMS Power Company PJSC
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NOTES TO THE FINANCIAL STATEMENTS
31 December 2004 and 2003
3 SIGNIFICANT ACCOUNTING POLICIES continued
TRANSLATION OF FOREIGN CURRENCIES AND FOREIGN EXCHANGE TRANSACTIONS
Transactions in foreign currencies are recorded at the rate ruling at the date
of the transaction. Monetary assets and liabilities denominated in foreign
currencies are retranslated at the rate of exchange ruling at the balance sheet
date. All differences are taken to the income statement.
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLES
The Company adopted SFAS 133 "Accounting for Derivative Instruments and Hedging
Activities", on 1 January 2001. SFAS 133 establishes accounting and disclosure
requirements for most derivative instruments and hedging transactions involving
derivatives. SFAS 133 also requires formal documentation procedures for hedging
relationships and effectiveness testing when hedge accounting is to be applied.
In accordance with the transition provisions of SFAS 133, in the year ended 31
December 2001, the Company recorded a cumulative loss adjustment of AED 21.5
million in its income statement as a transition adjustment to reflect a
liability for the fair value of all derivatives that did not previously meet the
requirement for hedge accounting treatment prior to the adoption of SFAS 133. In
addition, the Company recorded a transition gain of AED 30.7 million to
accumulated other comprehensive income to recognise an asset for the fair value
of all derivatives accounted for as cash flow hedges prior to the adoption of
SFAS 133. This amount shall be reclassified to the income statement over the
period during which the hedged forecast transaction affects the income
statement.
DERIVATIVES
The Company obtained long-term US Dollar (USD) debt to fund the development and
construction of the plant. Interest payments associated with the debt are based
on LIBOR plus a spread. The Company uses derivative financial instruments to
manage the interest rate exposures associated with the debt. The Company's
objective is to offset gains and losses resulting from these exposures with
losses and gains on the derivative financial instruments thereby reducing
volatility in earnings and cash flows. In addition, the Company uses forward
foreign exchange contracts to hedge its risk associated with foreign currency
fluctuations relating to scheduled maintenance cost payments to an overseas
supplier.
The Company does not utilise derivative financial instruments with a level of
complexity or with a risk greater than the exposures to be managed nor does it
enter into or hold derivatives for trading purposes. The use of the derivative
financial instruments associated with the interest rate risk is mandated by the
debt agreements. All derivatives entered into by the Company are subject to
internal policies that provide guidelines for control, counterparty risk and
ongoing monitoring and reporting of such activities.
The fair value of all derivatives is reported on the balance sheet based on
prevailing market rates. Derivatives with positive market values (unrealised
gains) are included in other current assets and derivatives with negative market
values (unrealised losses) are included in other current liabilities in the
balance sheet.
Changes in fair value of derivatives qualifying as cash flow hedges are recorded
in accumulated other comprehensive income and recognised in the income statement
in the corresponding period to which the cash flows associated with the
underlying hedged item transpire. Changes in fair values of contracts excluded
from the assessment of hedge effectiveness and those contracts that have not
been formally designated as hedges are recorded as a separate line in the income
statement in the period they arise.
8
Emirates CMS Power Company PJSC
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NOTES TO THE FINANCIAL STATEMENTS
31 December 2004 and 2003
3 SIGNIFICANT ACCOUNTING POLICIES continued
ASSET RETIREMENT OBLIGATIONS (ARO)
SFAS No. 143, Accounting for Asset Retirement Obligations became effective in
January 2003. It requires companies to record the fair value of the cost to
remove assets at the end of their useful life, if there is a legal obligation to
do so. The Company has legal obligations to remove assets at the end of their
useful lives and restore the land.
The fair value of asset retirement obligations (ARO) liabilities has been
calculated using an expected present value technique. This technique reflects
assumptions, such as costs, inflation and profit margin that third parties would
consider to assume the settlement of the obligation. Fair value, to the extent
possible, should include a market risk premium for unforeseeable circumstances.
No market risk premium was included in the ARO fair value estimate since a
reasonable estimate could not be made. If a five percent market risk premium
were assumed, the ARO liability would be AED 17.3 million.
In 2003, the Company recorded an ARO liability for the restoration of land and
an AED 1.2 million, cumulative effect of change in accounting for accretion and
depreciation expense for ARO liabilities incurred prior to 2003. As the plant
began operation in August 2001, the pro forma effect on results of operations
would not have been materially different from the actual results for the year
ended 31 December 2002.
The following table presents the reconciliation of the beginning and ending
carrying value of the ARO:
2004 2003
AED '000 AED '000
--------- ---------
ARO liability - At 1 January 15,403 14,531
Accretion expense 1,109 872
--------- ---------
ARO liability - At 31 December 16,512 15,403
========= =========
ACCUMULATED OTHER COMPREHENSIVE INCOME
SFAS No. 130, "Reporting Comprehensive Income" establishes rules for the
reporting of comprehensive income and its components. Comprehensive income is
defined as all changes in equity from non-owner sources. For the Company,
comprehensive income (loss) consists of net income (loss) and reclassification
to earnings of derivative instruments designated and qualifying as cash flow
hedges. The Company reports comprehensive income (loss) in the statements of
stockholders' equity.
4 PREPAYMENTS AND OTHER CURRENT ASSETS
2004 2003
AED '000 AED '000
-------- --------
Positive fair value of derivatives (note 19) 10,326 15,234
Other receivables 4,551 313
Prepaid finance cost 2,575 -
Prepaid expenses 8,523 9,527
-------- --------
25,975 25,074
======== ========
9
Emirates CMS Power Company PJSC
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NOTES TO THE FINANCIAL STATEMENTS
31 December 2004 and 2003
5 AMOUNTS DUE FROM RELATED PARTY
2004 2003
AED '000 AED '000
---------- ----------
Abu Dhabi Water and Electricity Company 65,719 38,799
========== ==========
6 ADVANCE TO AL TAWEELAH SHARED FACILITIES COMPANY LLC (TSFC)
This represents an advance made to TSFC by the Company in proportion to its 18%
(2003: 18%) shareholding in TSFC against future use of their facilities. Amount
receivable within one year has been included under current assets.
7 INVENTORIES
2004 2003
AED '000 AED '000
--------- ---------
Fuel 24,470 26,975
Spare parts and consumables 138,177 139,759
--------- ---------
162,647 166,734
========= =========
8 PROPERTY, PLANT AND EQUIPMENT, NET
The components of property, plant and equipment are as follows:
2004 2003
AED '000 AED '000
---------- ----------
Buildings 205,114 205,114
Plant and equipment 2,194,055 2,193,309
Plant spares 6,266 6,656
---------- ----------
2,405,435 2,405,079
Less: accumulated depreciation (228,795) (162,867)
---------- ----------
2,176,640 2,242,212
========== ==========
The activities of the Company are carried out from premises and equipment
constructed on land leased from ADWEA. The initial term of the lease is 25 years
and a nominal rental is payable by the Company. Leasehold land is carried in the
books at nil value.
At 31 December 2004 the net book value of property, plant and equipment financed
by an Islamic Ijara debt under financing arrangements amounted to AED 551
million (note 14).
10
Emirates CMS Power Company PJSC
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NOTES TO THE FINANCIAL STATEMENTS
31 December 2004 and 2003
9 INVESTMENT
2004 2003
AED '000 AED '000
---------- ----------
UNQUOTED INVESTMENT
Cost at 31 December 178 178
========== ==========
The investment represents the 18% (2003: 18%) equity interest acquired by the
Company in Al Taweelah Shared Facilities Company LLC ("TSFC"). TSFC is a closely
held private company which maintains shared utility facilities for the supply
and discharge of sea water and provides other related services to the Company
and other operators at the Taweelah complex.
The fair value of the investment is not materially different from its carrying
amount.
10 INTANGIBLE ASSET
2004 2003
AED '000 AED '000
---------- ----------
Cost:
At 1 January and at 31 December 112,623 112,623
---------- ----------
Amortisation:
At 1 January 5,903 2,940
Charge for the year 2,963 2,963
---------- ----------
At 31 December 8,866 5,903
---------- ----------
Net book amount 103,757 106,720
========== ==========
The intangible asset arose from the transfer during the year ended 31 December
2002 of plant and equipment to a related party in accordance with an agreement
dated August 2000 and represents the acquisition cost of the Company's right of
connection to the transmission system at the connection site for a period of 38
years. Accordingly, the connection rights cost is being amortised on a
straight-line basis over the 38 year period, being the expected period of
benefit, commencing 1 January 2002.
11 AMOUNT DUE TO RELATED PARTIES
2004 2003
AED '000 AED '000
---------- ------------
Al Taweelah Shared Facilities Company 207 225
Taweelah A2 Operating Company 2,083 1,923
CMS Resource Development Company 551 1,329
---------- ------------
2,841 3,477
========== ============
11
Emirates CMS Power Company PJSC
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NOTES TO THE FINANCIAL STATEMENTS
31 December 2004 and 2003
12 ACCRUALS AND OTHER LIABILITIES
2004 2003
AED '000 AED '000
---------- ----------
Accrual for spare parts 26,348 34,659
Accrued interest expense -- 42,439
Negative fair value of derivatives (note 19) 230,566 257,796
Other payables 7,850 11,796
---------- ----------
264,764 346,690
========== ==========
13 LONG TERM DEBT
During 1999, the Company obtained loan facilities ("the old facilities") from a
syndicate of banks led by Barclays Capital Bank amounting to USD 596,000,000
(AED 2,188,810,000), out of which USD 556,000,000 (AED 2,041,910,000) was fully
drawn by 31 December 2001 to finance the construction of the Plant. The loan
carried interest at a variable rate of LIBOR plus a premium of between 0.8% and
1.5% per annum for the original remainder period of the term loan. The loan also
carried a commitment fee of 0.35% per annum of the undrawn amount.
On 15 March 2004, the Company obtained a USD 388 million (AED 1,425 million)
conventional loan facility and US $150 million (AED 551 million) Islamic Ijara
financing facility (note 14) ("the new facilities") from a syndicate of
international and UAE based banks to refinance the old facilities and repay up
to US $35 million (AED 129 million) of the loan from shareholders (note 15).
Both loans were fully drawn during the year.
The conventional loan carries interest at a variable rate of LIBOR plus a
premium of between 0.95% and 1.3% per annum for the remainder period of the
conventional loan.
During the year the first and second instalments amounting to USD 11.3 million
(AED 41.5 million) were paid, with the remaining balance repayable in half
yearly instalments until June 2020 in accordance with an agreed upon instalment
schedule. The conventional loan is secured by a number of security documents
including a commercial mortgage over all tangible and intangible assets of the
Company, a pledge of the shares in the Company by both shareholders and a pledge
of the equity interest in TSFC. The conventional loan is also subject to various
covenants as stipulated in the loan facility agreement. The arrangement fees
incurred in connection with the debt refinancing arrangements are recognised in
the income statement over the repayment period of the new facilities. The
non-current portion of AED 37.3 million has been included under non-current
assets and the current portion of AED 2.6 million has been included within
prepayments and other current assets (note 4).
Under the terms of its loan facility agreement, the Company is required to enter
into interest rate swap agreements to hedge its interest cost exposure against
fluctuations in interest rates (note 19).
The portion of the conventional loan due in less than one year of the balance
sheet date amounting to AED 60,289,000 (2003: AED 58,631,000) is included under
current liabilities.
Amounts repayable over the next five years are as follows:
AED '000
--------
2005 60,289
2006 59,990
2007 63,253
2008 68,696
2009 74,581
12
Emirates CMS Power Company PJSC
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NOTES TO THE FINANCIAL STATEMENTS
31 December 2004 and 2003
14 ISLAMIC IJARA DEBT
The Islamic Ijara debt is secured by an assignment of identified parts of the
plant and equipment purchased under the Islamic financing arrangement, and is
repayable in thirty three semi annual instalments commencing from 30 June 2004.
A fluctuating profit charge is paid under the Islamic financing agreement, which
is based on LIBOR plus a margin (see also note 13).
The portion of the Islamic Ijara debt due in less than one year of the balance
sheet date amounting to AED 23,308,000 (2003: nil) is included under current
liabilities.
Amounts repayable over the next five years are as follows:
AED '000
--------
2005 23,308
2006 23,192
2007 24,453
2008 26,558
2009 28,833
15 LOANS FROM SHAREHOLDERS
2004 2003
AED '000 AED '000
---------- ----------
Emirates Power Company PJSC 118,980 156,000
CMS Generation Taweelah Limited 79,320 104,000
---------- ----------
198,300 260,000
========== ==========
Non-current liabilities 49,425 131,000
Current liabilities 148,875 129,000
---------- ----------
198,300 260,000
========== ==========
The above loans are free of interest and are unsecured. Though the terms of
repayment have not been specified for these loans, they are subject to terms of
repayment as resolved by the Board of Directors.
The Board of Directors anticipates that the Company will make a shareholder loan
repayment of approximately AED 149 million in 2005. Accordingly, this amount has
been included under current liabilities.
13
Emirates CMS Power Company PJSC
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NOTES TO THE FINANCIAL STATEMENTS
31 December 2004 and 2003
16 SHARE CAPITAL AND STOCKHOLDERS' EQUITY
Authorised, issued and fully paid
Unaudited
2004 2003 2002
AED '000 AED '000 AED
--------- --------- ---------
Ordinary Shares of AED 10 each 413,240 413,240 413,240
========= ========= =========
The Company maintains its statutory accounting records in accordance with
International Financial Reporting Standards (IFRS). U.A.E. Commercial Companies
Law of 1984 (as amended) and the Company's Articles of Association require 10%
of the net profit for the year, based on net income derived from the statutory
financial statements prepared in accordance with IFRS, to be transferred to a
statutory reserve. The reserve is not available for distribution. Included in
accumulated losses is an amount of AED 36,187,000 (2003: AED 27,029,000) in
respect of the required statutory reserve, which is not available for
distribution.
The Board of Directors recommendation for the distribution of dividends and the
ratification and approval of the Shareholders of the dividends are based on the
statutory financial statements.
17 RELATED PARTY TRANSACTIONS
These represent transactions with related parties, ie. other subsidiaries of Abu
Dhabi Power Corporation and ADWEA and other subsidiaries of CMS Energy
Corporation, shareholders and senior management of the Company, and companies of
which they are principal owners. Pricing policies and terms of these
transactions are approved by the Company's senior management.
Significant transactions with related parties included in the income statement
are as follows:
Unaudited
2004 2003 2002
AED '000 AED '000 AED '000
---------- --------- ----------
Revenue from available capacity and supply of water and
electricity to ADWEC 366,023 363,564 370,686
TSFC service charge 2,517 1,586 2,067
Other charges from TSFC 1,747 1,668 1,670
Charges by Taweelah A2 Operating Company analysed as follows:
Management fee (note 21) 4,278 4,261 4,319
Manpower support services 13,238 10,852 9,673
Reimbursement of other third party costs paid on behalf of the Company 688 614 1,429
Charges by CMS Generation analysed as follows:
Manpower support service 3,770 1,979 3,193
Reimbursement of other third party costs paid on behalf of the Company 1,211 -- --
Amounts due from and to related parties are disclosed in notes 5, 6, 11 and 15
to the financial statements.
14
Emirates CMS Power Company PJSC
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NOTES TO THE FINANCIAL STATEMENTS
31 December 2004 and 2003
18 FAIR VALUE OF FINANCIAL INSTRUMENTS
With the exception of the loans from shareholders, the fair value of the
Company's financial instruments approximates their carrying amounts.
It is not practicable to determine the fair value of the loan from shareholders
with sufficient accuracy. Information on the principal characteristics of the
loan is presented in note 15 to the financial statements.
19 DERIVATIVES
In order to reduce its exposure to interest rate fluctuations on the term loan
and Islamic Ijara debt, the Company has entered into an interest rate
arrangement with a counter-party bank for a notional amount that matches the
outstanding term loan and Islamic Ijara debt. The notional amount outstanding at
31 December 2004 was AED 1,919 million (2003: AED 1,828 million). In addition,
the Company uses forward foreign exchange contracts to hedge its risk associated
with foreign currency fluctuations relating to scheduled maintenance cost
payments to an overseas supplier. The outstanding forward foreign exchange
commitment at the year end amounted to AED 21million (2003: AED 42 million).
The derivative instruments had a negative fair value of AED 231 million (2003:
negative fair value of AED 258 million) which is included within other current
liabilities (note 12) and a positive fair value of AED10 million (2003: positive
fair value of AED 15 million) which is included within other current assets
(note 4). As a result of the debt refinancing arrangements concluded by the
Company in March 2004 as explained in note 13, the derivatives existing prior to
the refinancing date have been novated and new interest rate swap contracts have
been entered into as part of the debt refinancing arrangements.
20 RISK MANAGEMENT
INTEREST RATE RISK
The Company is exposed to interest rate risk on its interest bearing liabilities
(term loan and Islamic Ijara loan). Whilst the current level of financing cost
rates are low, management has sought to limit the exposure of the Company to any
adverse future movements in interest rates by entering into interest rate
arrangements (derivative instruments see note 19). Management is therefore of
the opinion that the Company's exposure to interest rate risk is limited.
CONCENTRATION OF CREDIT RISK
The Company sells its products to one related party. It seeks to limits its
credit risk with respect to this customer by monitoring outstanding receivables.
LIQUIDITY RISK
The Company limits its liquidity risk by monitoring its current financial
position in conjunction with its cash flow forecasts on a regular basis to
ensure funds are available to meet its commitments for liabilities as they fall
due. The Company's terms of sale require amounts to be paid within 30 days of
the date of sale. Trade payables are normally settled within 30 days of the date
of purchase.
CURRENCY RISK
The Company uses forward currency contracts to eliminate currency exposures on
its fixed Euro plant maintenance payments. The majority of other transactions
are in UAE Dirhams. As the UAE Dirham is pegged to the US Dollar, balances in US
Dollars are not considered to represent significant currency risk. Management is
therefore of the opinion that the Company's exposure to currency risk is
limited.
15
Emirates CMS Power Company PJSC
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NOTES TO THE FINANCIAL STATEMENTS
31 December 2004 and 2003
21 ADMINISTRATIVE AND OTHER OPERATING EXPENSES
Unaudited
2004 2003 2002
AED '000 AED '000 AED '000
--------- --------- ---------
Management fees 4,278 4,261 4,319
Other 4,418 3,826 3,606
--------- --------- ---------
8,696 8,087 7,925
========= ========= =========
22 INCOME TAX
The Company is not subject to income or other similar taxes in the United Arab
Emirates and, accordingly, no income tax has been reflected in these financial
statements.
16